Thinking about restructuring your C corporation? IRS rules
enable C corps, or companies whose profits are taxed separately
from those of their owners, to carry any losses back two years and
forward for a generous 20 years. "But there's a
catch," says Steve Hopfenmuller, CPA and founder of www.smbiz.com, a website
dedicated to tax guidance for SMBs. "A significant ownership
shift in the corporation limits those losses."

For tax purposes, a significant ownership shift is defined as a
change of more than 50 percentage points of ownership by a major
stakeholder within a three-year period. If such a shift occurs,
"Annual net operating loss carry-overs would be limited to an
amount equal to the federal long-term tax-exempt interest rate [a
number published monthly by the IRS] times the fair market value of
the stock at the time of the ownership shift," explains
Hopfenmuller. "For example, if the stock were worth $1 million
at the time of transfer and the interest rate [at that time] was 4
percent, the company could use only $40,000 of carry-forward net
operating losses every year."

These rules are meant to discourage the purchase of C corps
purely for tax-loss purposes, says Hopfenmuller. "Keep in mind
that any significant sale of stock in a C corporation requires a
check with your [tax] advisor."

Jennifer Pellet is a New York City freelance
writer specializing in business and finance.